Friday August 28 2020
A High Wire Act
We have consistently warned that the market is a high wire act, the stock averages are pushed higher by fewer and fewer stocks with heavy weights in the averages. Here are some examples.
The S & P 500 closed higher for five days in a row. But on four of the five days more individual stocks were down than up. A survey of investment advisors show the highest level of bullish opinion in 31 years (the mantra is buy low sell high not the other way around.) Exxon Mobil was removed from the DJIA 30 and replaced with Salesforce. It advanced 29% Monday helping move the overall average higher. Last week the NASD advanced 190 points in a day. Apple alone accounted for 167 points of that rise. This looks more and more like the dot.com mania which rose the final 3,000 of 5,000 NASD points in the last two of its 18 year rally.
The removal of Exxon Mobil from the DJIA speaks volumes that energy is not the important industry it used to be. The FANG stocks, all tech related, reign supreme. The volume of oil and gas produced has the US more independent of Mid-East uncertainty. Now we face the uncertainty of a Democrat Party victory, which would shelve the very industry that has given us that independence.
The charts of the international oils look the same. Each bounced from late March to June 8, well below the February 12 highs. The prices vary but each is testing a line of support going back to May. This would include BP, XOM, CVX, and COP. A break of even a couple of points below those lines will call the recovery rally into question, suggesting lower prices.
Eagle Ford producers and Service Companies are spending more time in bankruptcy court than in the oil patch. The best of the group including Continental Resources, EOG, and Diamondback also reflect charts like the Internationals, a drop of even a couple of points would likely send share prices much lower. The Home Alone movement means less demand for fuel by both commuters and airlines, the latter continue to shed thousands of employees.
Share prices of most oil drillers both on and offshore are in single digits some trading for less than a dollar.
The markets seem impervious to what is sure to be a battle over close election results. Control of the Senate is even more important. That could mean a Democrat Senate and House, the former likely no longer tied to a sixty vote rule to pass legislation. As mentioned last week, it appears the High Wire Act will extend beyond Labor Day when the campaigns begin in earnest.
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